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Rating Action:

Moody's affirms DAE Aviation (StandardAero)'s B3 CFR; assigns Caa2 rating to proposed second lien term loan

Global Credit Research - 17 Jan 2014

Approximately $840 million of rated debt affected

New York, January 17, 2014 -- Moody's Investors Service assigned DAE Aviation Holdings, Inc.'s ("DAE" or "StandardAero") proposed $300 million second lien term loan a Caa2 rating. Concurrently, Moody's affirmed the company's B3 Corporate Family Rating ("CFR") and B3-PD Probability of Default Rating as well as the B2 rating on its existing $540 million first lien term loan. The ratings outlook is stable.

Proceeds from the proposed $300 million second lien term loan due 2019 along with cash on hand is expected to be applied towards refinancing DAE Aviation's existing $300 million 11.25% senior unsecured notes due 2015. As part of the proposed transaction, the company's first lien-term loan is expected to be repriced.

The proposed transaction should favorably contribute to the company's credit profile by pushing out the company's debt maturity profile and by reducing interest expense by an estimated $15 million. Total funded debt levels would remain unchanged following the proposed transaction.

Ratings assigned:

$300 million second lien term loan due 2019, at Caa2 (LGD-5, 83%)

Ratings affirmed:

Corporate Family Rating, at B3;

Probability of Default Rating, at B3-PD;

$540 million first lien senior secured term loan B (aggregate of Tranche B-1 and Tranche B-2) due 2018, at B2 (LGD-3, 40% from 39%);

$300 million 11.25% senior unsecured notes due 2015, at Caa2 (LGD-5, 84%)*;

* The rating on the existing notes will be withdrawn upon their repayment

Rating outlook, stable

The assigned ratings are subject to Moody's review of the final terms and conditions of the proposed transaction.

RATINGS RATIONALE

DAE's B3 CFR reflects the company's still high leverage, modest free cash flow generation and softness in the macroeconomic environment combined with defense budget pressures partially offset by the company's leading position in key aviation segments across diverse end-markets and often under long-term contracts. DAE's highly leveraged capital structure is reflected in debt/EBITDA standing at 6.0x at September 30, 2013, pro forma for the proposed transaction. It is also our expectation that working capital requirements to support growth engine programs will consume a good portion of DAE's internally generated cash flow over the intermediate term with any excess cash balances used to repay elevated debt levels. However, DAE has a strong competitive position in a market with good long-term fundamentals, diversification across end markets including commercial and business aviation to military applications and interior completions as well as certifications and OEM authorizations across a broad range of key aircraft engine platforms. In addition, increased aviation activity and favorable outsourcing trends should support modestly higher demand for DAE's maintenance, repair and overhaul ("MRO") services over the long-term.

The stable rating outlook is supported by DAE's adequate liquidity profile and expectation that the company will have modest top line and earnings growth with moderate deleveraging.

Ratings could be moved up should DAE maintain an adequate liquidity profile and demonstrate leverage trending towards 5.5 times on a sustained basis. The expectation of continued positive free cash flow generation would also support upward rating movement.

Ratings could be downgraded if liquidity becomes stressed or if adjusted leverage exceeds 7x.

The principal methodology used in this rating was the Global Aerospace and Defense published in June 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

DAE Aviation Holdings, Inc. ("DAE") is a leading provider of aircraft engine maintenance, repair and overhaul ("MRO") and aircraft completion and modification services to the commercial, business, military and general aviation industries. Annual revenues total $1.7 billion, with approximately 80% of revenues generated in North America. DAE is headquartered in Tempe, Arizona and is wholly-owned by Dubai Aerospace Enterprises LTD ("DAE Dubai").

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jadijhe (Gigi) Adamo
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms DAE Aviation (StandardAero)'s B3 CFR; assigns Caa2 rating to proposed second lien term loan
No Related Data.

 

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